Help to Buy ISA transfer to Lifetime ISA: act sooner rather than later

Help to Buy ISA savers looking to transfer their money to the Lifetime ISA are urged to make the switch earlier than the tax year end as the move can take up to 30 days.

First-time buyers looking to get onto the property ladder now have a choice of two schemes, both offering government bonuses of 25% on savings.

The Help to Buy ISA (H2B ISA) scheme was launched in December 2015 and is available for first-time buyers aged 16 or over. You can save up to £200 per month and for every £200 saved, the government will top it up with a 25% bonus, capped at £3,000. The bonus can only be used against the cost of buying a property – worth up to £450,000 in London or up to £250,000 elsewhere.

But in April this year, the government’s Lifetime ISA (LISA) scheme launched allowing adults aged over 18 and under 40 to save up to £4,000 a year where they’ll receive a government bonus of 25% (excluding investment interest or growth) – £1,000 on top.

The money can be used to buy your first home or for retirement, but for first-time buyers, the sum can be used to buy a property worth up to £450,000 nationwide. LISA contributions can continue until the age 50 which means savers can put away a total of £128,000 which is matched by a maximum government bonus of £32,000.

Given the similar nature of the schemes, first-time buyers may hold both a H2B ISA and a LISA this tax year. However, you will only be able to use the bonus from one of the schemes when purchasing a first home.

But during the 2017/18 tax-year only, special rules apply to the LISA. Until 5 April 2018, you can transfer your H2B ISA (valued at 5 April 2017) to a LISA without the amount contributing to the £4,000 annual LISA allowance. This means you’ll be able to invest up to £4,000 in a LISA and up to £16,000 into a cash, stocks and shares or Innovative Finance ISA (remember the annual limit is £20,000).

Further, the whole amount saved will benefit from the 25% government bonus. But transferring the H2B ISA to a LISA from 6 April 2018 onwards won’t receive the same beneficial treatment.

Process could take up to 30 days

While there are still four months for savers to consider whether to switch their H2B ISA to a LISA, HMRC guidance on ISA transfers gives a 30 day window for the process – ie the old provider has 30 days from the date of receipt of the request to transfer the funds. However, some assets could take longer.

Skipton Building Society, the only provider offering a cash version of the LISA, has set a 1 March 2018 deadline to accept transfer requests.

It expects high demand during this time and urges savers to act sooner rather than later.

Kris Brewster, head of products at Skipton Building Society, said: “In making this move, we are showing a clear signal of intent to help as many savers benefit from our cash LISA as we can by encouraging them to beat the imminent rush and not leave transferring in until it’s too late.

“There are reportedly over a million Help to Buy ISAs and Skipton is the only Cash Lifetime ISA provider. So we’re doing all we can to help people who want to transfer into our LISA ahead of the new tax year, so they can take advantage of the bigger annual savings allowance and potential government bonus.”

Since launch in June 2017, over 46,000 people have opened the cash LISA, investing over £60m. The savings rate will increase to 0.75% from 4 December.

What about the other providers?

There are currently four platforms offering an investment version of the LISA: AJ Bell, Hargreaves Lansdown, Nutmeg and The Share Centre. Foresters Friendly also offers a With Profits LISA.

Here’s what they told YourMoney:

AJ Bell: The facility to accept H2B ISAs to its LISA has only been running for a couple of months. It is aware of the 30 day transfer window but says the process takes an average of 14 days.

Hargreaves Lansdown: The average time for H2B ISA transfers to its LISA is 15 days. It adds that some 90% of the transfers into an Hargreaves Lansdown LISA are from H2B ISAs.

The Share Centre: Cash holdings are often transferred a lot quicker as there are no assets to sell or transfer. As such, it says the average time taken is 14 calendar days. It is unable to share specific numbers on transfers.

Foresters Friendly: It has only received a couple of requests which are still pending so it can’t give an average transfer time.